SINGAPORE (Mar 15): RHB is reiterating its “buy” call on Singtel given its underperformance over the past year following its selldown.

RHB has also updated the target price to $4.10 to reflect a higher effective stake in Bharti Airtel.

The rerating comes after Singtel’s recent completion of its purchase of an additional 1.7% stake in Bharti Telecom for $539.4 million, which effectively raised its stake in the latter’s subsidiary Bharti Airtel to 39.5% from 38.6% previously.

In a Wednesday report, RHB’s research team notes that at its share price of $3.41, the stock is trading at an adjusted 12.4 times FY19 EV/EBITDA, which is one standard deviation below its historical five-year mean.

Looking ahead, the team says Singtel is likely to increase its stake in Airtel as the group takes a longer-term view on its associates in spite of rising competitive risks across key markets.

It also sees a possibility in further opportunistic acquisitions, given adequate headroom provided by the group’s proceeds from its $1.1 billion sale of NetLink Trust.

“We believe Singtel’s 7-14% underperformance over the past 6-12 months, following the share price selldown, offers a good opportunity to accumulate… Competitive risks, while still prevalent in Singapore, India and Indonesia, are buttressed somewhat by the improving risk-reward profile at Optus and Singtel’s decent forward dividend yield of 5%.” says RHB.

Further, the research team sees the impending threat from new mobile virtual network operator (MVNO) Zero Mobile as mitigated by Singtel subscribers already locked into contracts as well as attractive bundled & handset offers.

RHB exepcts at least two new MVNOs, likely hosted by rival StarHub, to surface over the next few months or possibly even weeks, with one potentially to be aimed at foreign workers.

“We note that Singtel’s subsidies are mid-way across its rivals and are 3-9% lower (on average) than the subsidies offered on the Samsung S8 and S8+ models… M1 continues to have the most attractive subsidies at the lower-end/entry level plans,” it adds.

The research house remains “neutral” on StarHub and M1 at target prices of $2.65 and $1.95, respectively.

As at 10.35am, shares in Singtel are trading 1 cent higher at $3.41, or 1.86 times FY18 book.

Shares in StarHub and M1 are trading at the respective prices of $2.43 and $1.78.

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